The Real Deal New York

Solow courts new battles

Pugnacious — and wildly litigious — developer continues bare-knuckled quest for GM trophy building
By Adam Piore | March 31, 2008 04:17PM

Don’t call Sheldon H. Solow litigious. He just might sue you. The silver-haired, 79-year-old mogul built a $2 billion real estate fortune from scratch and now ranks 239th on the Forbes list of the 400 wealthiest Americans (he’s tied with Jerry Speyer and Harry Macklowe, among others). He won approval last month to transform the skyline of the East River with a $4 billion project on New York City’s largest privately owned tract of undeveloped land. And he owns one of the most coveted office towers in the city, at 9 West 57th Street — not to mention some of the finest art collections in the city.

But real estate insiders, normally a chatty bunch, would rather recite the dictionary backwards than discuss the scrappy builder from Queens.

“Are you kidding?” said one. “I don’t want to risk getting on his radar screen. It’s just not worth it.”

Over the course of a career spanning nearly six decades, Solow’s determination and self-assurance have carried him to the pinnacle of the real estate world. His 10-year effort to win approval for the East River development is nothing if not a testament to his tenacity.

But it’s a different high-profile campaign that perhaps best illustrates the bare-knuckled approach that has made the pugnacious developer feared in business circles: Solow’s battle with fellow mogul Harry Macklowe for control of the coveted General Motors Building.

Facing a mountain of short-term debt, Macklowe, the building’s current owner, began accepting bids in February for the landmark 50-story office tower at 59th and Fifth Avenue. Yet Solow has filed suit contending any sale will be invalid because the building is rightfully his. It’s a fight with roots dating back almost four decades, when the construction of the GM Building had a profound impact on Solow’s career.

Solow’s legal claims, however, take aim at the high-stakes auction for the building in 2003, when the insurance and financial services company Conseco, the property’s previous owner, awarded the title to Macklowe instead of Solow. Solow claims they did so under “fraudulent” circumstances, and that his bid should have carried the day. (Attorneys for Conseco and the brokers involved in the transaction deny the charge, and say they made clear that the “owner reserves the right … to accept or reject any offer for any reason.”)

Though few give Solow’s efforts much chance of succeeding in court, the litigation has already reportedly scared away at least one potential set of bidders — Larry Silverstein and the California State Teachers’ Retirement System — and may have a chilling effect on the overall sale price, some experts said.

“The deal has hair on it,” said Robert Freedman, vice chairman of GVA Williams. “Anyone who acquires this would have to establish a reserve for the lawsuit.”

More to the point, it highlights a style of real estate combat closely associated with Solow, real estate observers said. When he arrived in Manhattan in the late 1960s, Solow dubbed it “barracuda land.” But he may be the biggest barracuda of all. His costly legal battles — there have been upwards of 200 by some estimates — have made him a scourge of predators both large and small.

Those lawsuits have left behind a voluminous paper trail that creates a profile of a man who generally eschews the media, and sheds light on a school of New York City real estate moguls that has employed a generation of up-and-coming litigators.

“Sheldon Solow has a long rap sheet of bringing frivolous litigation,” said Jerome Katz, a lawyer from Ropes & Gray who is representing the firm Spartan Madison in a lease dispute — and accuses Solow of “extortionist litigation that is egregious, frivolous and irresponsible.”

Michael Gross, a Solow spokesperson, downplayed the significance of the lawsuits.

“Over the years, Mr. Solow has built and managed many thousands of landlord-tenant relationships, and litigation has resulted in only a small percentage of these.

“It’s also important to note that Mr. Solow has won several important legal cases, including a precedent-setting judgment against W.R. Grace over asbestos insulation at 9 West 57th Street,” Gross said. The court ordered W.R. Grace to pay a portion, but not all, of the asbestos cleanup. With respect to the GM Building, Gross noted that the federal court found Solow’s claims credible enough to allow the case to proceed.

Whatever the situation, the list of previous adversaries is an impressive one.

Over the decades, Solow’s opponents have included rival moguls, former tenants, former friends, cosmetics companies, film distributors, opposing attorneys and law firms, entire towns and neighbors — even the neighbors’ houseguests. Many of those fights have dragged on for years, cost millions of dollars and employed armies of attorneys.

In one epic (and ultimately unsuccessful) battle over ownership of an East Hampton oceanfront property that began in the late 1990s, Solow filed eight different lawsuits, and used upwards of 17 lawyers to argue and appeal his case through 13 different courts. He bought up the bankruptcy debt of one opponent down in Florida to gain leverage and flew helicopters over the property of another, prompting charges of harassment.

When repeated defeats failed to elicit even the slightest hint that Solow would surrender, opposing lawyers were finally forced to seek injunctions in federal and state court to bar him from filing any more litigation.

“He only won one motion out of 100 — the score was 100 to one — but that did not stop him,” said Errol Margolin, a partner at Margolin & Pierce who represented Peter Morton, founder of the Hard Rock Café, in the case. Morton, who currently owns the property, is now suing Solow for malicious prosecution. “He wanted that property, just like he wants the GM Building. He believes he is entitled to that property, and he wants to add it to his portfolio,” said Margolin. “He has money to spend. And if he’s not up against a guy who’s as big as he is — up against an ordinary person — one could see how that person would be overwhelmed by the onslaught.”

The sad saga of an East Side tenant organizer named Steven Delit may be an example of Goliath beating David. In a now notorious case, rich tenants of a luxury high-rise on East 66th Street began withholding rent in the 1980s, accusing Solow of not performing adequate maintenance on the property. But the battle famously hit a speed bump when Delit, an accountant with a predilection for leather pants and fur coats who had helped organize the rent strike, absconded to Africa with tens of thousands of dollars in rent money that was supposed to be in escrow.

The theft prompted years of additional litigation — Solow’s lawyers accused the tenants’ association and its lawyers of engaging in racketeering and assisting in the theft of the money, among other things. It’s a testament to Solow’s reputation that when Delit turned himself in nine years later, his lawyer attempted to blame the theft on the stress of taking on Solow.

Delit “became obsessed” with his battle against Solow and “lost his way,” defense attorney Gerald Lefcourt argued.

Suing as a strategy?

It’s hard to separate Solow the man from his lawsuits, which have touched virtually every aspect of his business life. Some speculate that Solow uses litigation as a “preemptive” business strategy rather than a last resort.

“He wants what he wants, and he goes after it in a big way,” Margolin said. “If he believes he’s right, he never gives up. He just keeps going.”

That penchant has certainly made people reluctant to cross him.

“He goes after people personally,” said one attorney who has faced off with him but declined to go on the record for fear of inciting Solow’s wrath. “One of the reasons people are hesitant to talk about him is
because he scares the shit out of them, to be frank. He’s got a lot of money, and he’s surrounded by powerful people.”

Still, others question the rationality of Solow’s feuds, claiming a number of them have had unmistakably emotional undertones. Perhaps, they opine, the lawsuits are simply the case of a man used to getting what he wants, and throwing a tantrum when he doesn’t.

“People often think there’s always a rational justification for business transactions,” said one insider who knows Solow. “But real estate development is a cult-of-personality business. You’re dealing with monumental egos and vanities. It’s not atypical for people to demonize or personalize adversaries.”

Solow, he added, is “profoundly emotional” and tends to “personalize his feuds.”

That’s certainly the case with the GM Building, which some who know him claim has become a “personal crusade to destroy Harry Macklowe.” Solow, according to some, has been heard excoriating both Macklowe and Vornado in recent months.

Solow has kicked his war against Conseco and Macklowe into high gear. In January, he won a key ruling from a judge greenlighting the initial suit deeming the transaction itself a fraud. He’s also reportedly attempted to buy up Macklowe’s debt, and filed a second suit alleging the deed used to transfer ownership was invalid —
a suit that his lawyers say is currently on hold while the first one proceeds.

In the end, it’s difficult to separate Solow’s willingness to brawl from his success in the real estate world. After all, the development sphere rewards fearlessness, since a successful developer must have a preternatural belief in his own rightness and vision.

Even his approach to his current project on the East Side is a testament to that.

“He is the owner, he is the developer, he is the decision maker,” said Marilyn Taylor, a partner at Skidmore, Owings & Merrill who is working with Solow on the design. “He doesn’t delegate that as much as some of the larger corporate clients we work with. It’s really Sheldon.”

Solow, said the insider, is “a very self-absorbed, self-possessed man.” But, he argued, that’s what makes Solow such a unique and effective individual.

“He happens to be one of the oddest, most interesting people I’ve ever met,” the insider said.

Family lessons

Like a number of other moguls, Solow came from a real estate family. But his legacy came with a lesson in just how ruthless the market can be. His father, Isaac, a bricklayer, became a successful builder in Brooklyn — until the Depression wiped him out and forced him back into masonry work for a time.

Solow studied engineering and architecture at New York University. On July 24, 1950, the New York Times ran the first of many items detailing Sheldon Solow’s career: J. Halperin & Co. had arranged a $592,000 FHA-insured mortgage loan for Sheldon and Isaac Solow. The money was to be used to erect a 72-family apartment building in Far Rockaway, Queens.

Solow, barely 22, and his father named the building “Sheldon Gardens.”

After completing the project in 1952, Solow moved on to one-family homes in Huntington, Long Island, and demonstrated his flair for playing up flashy modern amenities. He advertised split-level, two-bedroom residences for $11,900 featuring “a living room with picture window, kitchens with knotty pine cabinets and a breakfast area.” Next, he bought more property and announced plans for an 18-store shopping center on a 3-acre site next door.

Solow then moved on to Jamaica Bay, then went upscale with a large housing development in the Pebble Cove neighborhood of Far Rockaway, Queens. He constructed one- and two-family homes and garden apartments in a complex that included a yacht basin, swimming pools and tennis courts.

All of that, however, was just a prelude to the big time. In 1962, at the age of 34, Solow made the leap to Manhattan, moving his office from Far Rockaway into a suite at 410 Park Avenue.

He also acquired title to property on York Avenue and East 87th Street. Initial plans called for a $4 million investment to construct a 27-story building named the Rivers Bend. Solow promoted it as the only building in New York City to have a year-round glass-enclosed rooftop swimming pool, and the first apartment building since World War II with fireplaces.

During the pre-marketing phase, the project drew the attention of a broker who approached Solow with an ambitious idea: to assemble a multi-lot site on West 57th Street.

“At first I thought of putting an apartment house there,” Solow told the New York Times in 1970.

But that all changed with an architectural event that might help explain Solow’s current fixation on Harry Macklowe. The General Motors Building went up and convinced Solow to take the gamble that would catapult him into a different league.

“When the General Motors Building was in the wind, I thought an apartment house would be wasteful and that the site had strong potential as an office building,” Solow would later say of the building that is now known as 9 West 57th Street.

Building a tower to rival the trendsetting edifice down the road would be no easy task. For one thing, at the time, office development was confined to the East Side and stopped at Fifth Avenue. It was by no means assured that high-paying tenants would travel west to a neighborhood known for brownstones.

But vision was the least of Solow’s problems. Acquiring enough land to build a skyscraper would require multiple purchases of contiguous properties. And the sales would have to be kept quiet — if anyone detected a single entity buying contiguous lots, they could obtain a key piece and hold Solow hostage for a huge price.

Solow made his first buy on July 8, 1965, shelling out $275,000 for a five-story brownstone at 24 West 58th Street. To disguise his intent, he recorded the buyer under the name of Wiltshire Realty, a dummy company registered to his sister, Rosalie Wolff. Others he recorded in his name, relying on his own newcomer status in Manhattan real estate to fly below the radar.

He acquired a six-story brownstone at 26 West 58th Street for $424,000. He bought a lease on a nearby movie theater and used the air rights to extend his height. He cut deals with recalcitrant sellers and relocated corporate residential tenants who didn’t want to move.

Solow even convinced the Mormon church to hand over the four five-story buildings at 10 to 20 West 58th Street, as well as a building on 11 West 57th. In exchange, Solow promised them 40,000 square feet on four floors in his office tower, including a sanctuary, a community center and office space. Under the agreement, he offered them a security bond of $2.5 million. The church was to own the four floors independent of the rest of the building, according to press accounts at the time. (The church never moved in.)

All told, it took Solow five years and $12 million to acquire some 14 buildings, including properties at 9, 13, 15, 17, 19 and 21 West 57th and 36, 38 and 40 West 58th Street as well as a parking lot on the western side of the site. By the time he was done, the building site was 61,800 square feet.

“There were 14 buildings,” he told a reporter in 1970. “All someone would have to do is come in, take one, and that would be that.

“You can only get away with this once,” he added. “We’re in barracuda land.”

At the time, observers described Solow as a brash, young newcomer — “a bachelor who wears his brown hair
modishly long,” as the New York Times put it. But his achievement was nothing if not a product of his vaunted willfulness — a quality many of his elders commented on when describing him to reporters.

“He’s a resourceful young man,” Andrew Goodman, president of Bergdorf Goodman, said at the time after Solow had tried unsuccessfully to buy his property for the project.
“If you said no, he’d come back with another idea.”

Solow hired the famous architect Gordon Bunshaft to come up with plans for his masterpiece. Bunshaft, whose creations included Lever House and numerous other skyscrapers, later singled out Solow to describe his view of a “good client.”

“I don’t mean a good client is one who just says yes; he’s a man with ideas, and when he knows what he wants, he wants to fight for it. And I fight back.

“You know that building at 9 West 57th Street? Well, it’s being built by a young entrepreneur named Sheldon Solow,” Bunshaft told an interviewer from the New York Times. “Very bright guy, very difficult … . But he really cares about making that a good building, and he gets a lot of pride out of it, and he’s getting himself a good building.”

The building, which cost about $40 million to construct, offered 1.5 million square feet of rentable office space. Bunshaft gave the building a distinct curved façade, sloping upwards, with larger floor plates at the base and smaller ones higher up.

A distinctive red number “9,” a two-ton sculpture designed by Ivan Chermayeff, provided the final touch. When the humongous red digit arrived, Solow, Chermayeff and Bunshaft spent hours directing workmen to haul it back and forth around the building’s plaza as they argued about its placement. In the end, Solow worked out a deal with the city to rent a piece of sidewalk out front for $1,000 a year.

The initial reaction to the building was by no means favorable. In its biennial architectural awards, the Fifth
Avenue Association complained that “the Solow building has bad manners,” saying that the building broke the street line and disrupted the scale of the buildings around it.

But Solow was nonplussed.

“In 20 years,” he predicted, “that whole block will be developed at this scale, and I think my building will set the standard.”

He was right, and the success at 9 West 57th catapulted Solow into a new league. In 1972, Avon Products moved into the building, renting 21 floors — more than 420,000 square feet — at $13.50 a square foot. The company later expanded, taking up 25 floors and signing a multi-year lease valued at more than $225 million.

It was around this time that the first mentions of Solow’s legal battles began to hit the newspapers. Brokers at Williams Real Estate company accused Solow of cheating them out of their commission for bringing Avon to the building. A jury in the New York State Supreme Court awarded them a $1.7 million brokerage fee plus $400,000 in interest. Solow vowed to appeal.

In 1975, Solow sued Avon themselves, accusing them of misappropriating the building’s trademark by referring to 9 West 57th Street as “the Avon building” without paying him for the privilege.

The suit over the building name, a claim that had been dormant for 20 years, was revived and came to trial in May 2005. (An appellate division finally dismissed the claim last June.) After Avon decided to move when its lease expired in 1997, Solow also sued them for $80 million, accusing them of failing to restore the space to its “original condition.”

In 2004, the company agreed to pay $6.2 million to end the litigation.

But all of that was just a sideshow. After the construction of 9 West 57th, the name Sheldon Solow would be inextricably linked to quality real estate.

The building soon came to be considered among the most sought-after addresses in the city, and in the years to come was often tied to the GM Building: Together, the two were mentioned as commanding the highest rents in the city, offering the best views of Central Park and drawing top tenants. So it’s perhaps not surprising that Solow has continued his aggressive play for the GM Building even in the face of defeat — it’s well known in real estate circles that Solow considers the GM Building the second piece in a set of trophy office towers.

And, remember, he is a man who usually gets what he wants.

Battle with Conseco

At the heart of Solow’s suit is the claim that Conseco was legally required to conduct a fair auction and award the building to the highest bidder. Though Judge Barbara Jones of the United States District Court made no judgment on the merits of his case, she surprised many when she allowed it to go forward in January based on the allegations that Conseco “breached its duty to hold a fair auction and committed fraud,” according to the New York Times.

In his court filing, Solow contends that Ben Lambert and Wayne Maggin of Eastdil Realty Company, the brokers on the deal, assured him among other things that bidders would not be shown or told the amounts offered by other bidders, that each bid would be considered on its merits, and that the building would be sold to the highest bidder.

He accuses them of failing to live up to all of those promises and singling out Harry Macklowe for special treatment.

Lambert and Maggin, he contends, repeatedly stressed the importance of a timely submission of bids, setting a deadline for the second round of Aug. 26, 2003, before 5 p.m. They claimed that all offers would be opened at 6 p.m., in the presence of Conseco and their legal counsel.

Solow bid $1.4 billion, with 20 percent or $280 million to be provided as equity, and a $50 million deposit. Another bid by Leslie Dick Worldwide totaled $1.5 billion but “was rejected out of hand due to serious concerns over its ability to finance the transaction and the lack of the company’s experience and presence in the New York market,” according to the suit. (Dick also sued, but his case has been dismissed.)

Three other participants also submitted $1.4 billion bids but offered far lower deposit amounts, according to the suit. Solow claims Macklowe’s bid consisted of $1.365 billion and an accompanying letter offering to add between $10 to $15 million more if his initial bid was exceeded by others — which would still bring his bid in below $1.4 billion.

Yet after the bids were submitted, Eastdil agents “ushered” Harry Macklowe up to their offices and allowed him “to be physically present in the offices where the bids of other participants were opened,” the filing claims. Macklowe also stated that his financing would come from Wachovia, Solow’s filing notes, but Wachovia had not yet finished due diligence on the deal, and in the end did not end up financing it.

The claim: “At approximately 9 a.m., the morning after the auction, defendants contacted Macklowe — and only Macklowe — and informed him that, in spite of their prior representation that the Aug. 27 bid round was to be the ‘final’ round of bidding, the building would be his if he would agree to pay a fixed price of $1.4 billion.”

In response, Conseco’s attorneys claim Macklowe offered to put up a $50 million nonrefundable deposit and to waive due diligence. But Solow claims he would have done the same if given the opportunity.

“While Solow tied up hundreds of millions of dollars in capital, forgoing other opportunities and spending valuable time and money participating in defendants’ sham auction process, the defendants exploited their fraud of Solow to extract additional millions for their sale of the GM Building,” the suit claims.

In its response, Conseco argues that they were not bound by bid procedures requiring them to accept the highest bid, and notes that their bid procedures stated that “the proposed sale of the property may be withdrawn without liability prior to, during or after the auction for any reason, including a contemplated private sale or a determination that a sale price pursuant to the terms and conditions of the auction is not in the best interests of Conseco.”

They also claim they sent a letter to Solow on Aug. 13 stating: “The owner reserves the right in its sole and absolute discretion to accept or reject any offer for any reason.”

Their response also seems to indicate that Solow fell out of consideration as a top bidder after his initial bid on Aug. 11. “Based on your initial proposal, you were not selected by the owner to participate in the final round. However, you have indicated that you desire to continue in the process.”

Though he declined to speculate on Solow’s case, Barry Hersh, a professor at NYU’s Real Estate Institute and a long-time observer of the market, said that sellers often consider factors besides the highest bid when choosing a buyer.

“The highest price certainly means a lot, but it’s certainly not everything,” Hersh said. “The outcome depends on what the form was and how they solicited prices. If they put it out and said, ‘Just give us a number; we don’t care about anything else,’ that’s one thing. But I doubt that very much.”

GVA’s Freedman is also skeptical the suit will succeed. But he said it has value as a business strategy for Solow.

“Why he’s doing it, it’s difficult to say,” Freedman said. “He may think ultimately, he has an advantage — only he can waive the lawsuit, and can make a last-minute bid. Or he can monetize his claim and be paid to go away. He’s asserting his position.

“I think the bidders who are emerging in the second round today are highly sophisticated, well capitalized and uniquely equipped to deal with Solow’s litigation,” he said. “But the reality is, it could tie up legal claim of ownership. What Solow has right now is nuisance value.”

Snapshots from the courtroom

The total number of Sheldon Solow’s costly legal battles is estimated to be 200 or higher. Here are some of the highlights:

Solow v. Feldstein & Solow v. Morton

Solow hired 17 lawyers to file eight lawsuits involving an oceanfront house he purchased in East Hampton. The house was entangled in a web of multi-millionaires — including the founder of the Hard Rock Café — feuding over who owned it. Solow never got the house and was barred from filing any additional lawsuits in connection with the property.

Solow v. Kalikow

Solow and fellow real estate tycoon Peter Kalikow were once friends. They were so tight that Solow loaned Kalikow $7 million in 1994. But in a bizarre twist, Kalikow angered Solow by paying back the loan too quickly and depriving him of the 9 percent interest he was expecting. Solow brought Kalikow to court for failing to disclose all of his assets at the time of the loan. The claim was dismissed in 1997.

Solow v. W.R. Grace & Co.

Solow hired David Boies — a former lawyer to President Clinton — in his suit against chemical company W.R. Grace. Solow claimed that nearly 30 years earlier, Grace sold him fireproofing materials for 9 West 57th Street that contained asbestos. In 1999, Solow was awarded $11.6 million. While that amount was only about a third of the $30 million he sought, it was a substantial sum that allowed him to credibly counter his reputation for filing frivolous suits.

Solow v. Delit

This case was capped by an international disappearing act by Steven Delit, a tenant organizer who led a rent strike against Solow in 1990 at 265 East 66th Street, a luxury apartment building. The group withheld about $1.7 million from Solow, but Delit fled the country and was on the lam for nine years. In 1993, Solow sued the tenants’ rights association for embezzling the rent-strike funds. The case was thrown out of court.

Solow v. Avon Product

Solow sued Avon, a tenant at 9 West 57th Street, in 1975, alleging that the beauty company was improperly referring to the tower as “the Avon Building” without paying him for the right to do so. The suit was shelved for more than 30 years before it was dismissed in 2007. Solow sued Avon again in 1997 after the company moved out, alleging that it failed to return the building to its original condition. Avon paid Solow $6.2 million in an out-of-court-settlement in 2004.

Solow v. Conseco Inc.

In one of the most highly publicized Solow battles, the developer has sued the former owner of the GM Building, Conseco, twice over its 2003 sale of the GM Building to Harry Macklowe. In January, a judge ruled that Solow’s first lawsuit, which claims that the sale was a fraud, could proceed. Solow claims the sale was rigged and that Conseco planned to sell to Macklowe the entire time. Conseco argues that it had the right to sell to whomever it wanted.